Barry Ritholtz: Red Cross must reveal how it spent donations from Sandy

By Barry Ritholtz, Bloomberg News

Monday, June 30, 2014

Whenever there is some global catastrophe, we break out the checkbook, sending a donation to the Red Cross. Whether it’s an earthquake in Haiti or a tsunami in Japan, many people’s natural inclination is to send money to one of world’s best-known charities.

Superstorm Sandy hit the Northeast U.S. in October 2012, devastating parts of New Jersey and New York. It did damage up and down the eastern seaboard. According to the National Oceanic and Atmospheric Administration (NOAA), the total property damage amounted to $65 billion.

Americans are especially generous following natural disasters. They sent $312 million in donations to the American Red Cross after the storm. Unfortunately, the charity hasn’t been very forthcoming in how it spent that money. It seems to be stonewalling ProPublica, which has been writing about how post-Sandy money has been spent. It reports:

Just how badly does the American Red Cross want to keep secret how it raised and spent over $300 million after Hurricane Sandy? The charity has hired a fancy law firm (Gibson Dunn) to fight a public request we filed with New York state, arguing that information about its Sandy activities is a “trade secret.” The Red Cross’ “trade secret” argument has persuaded the state to redact some material, though it’s not clear yet how much since the documents haven’t yet been released.

That’s right, the Red Cross has lawyered up. I find it hard to believe that how a charity spends its money could possibly be a trade secret.

Some disasters are more personal than others, as was Sandy to those of us who live within a hundred miles or so from where the storm made landfall.

Where I live on the North Shore of Long Island, New York, the damage was mostly downed trees, damaged roofs, flooding and loss of power. In our house, we treated the lack of electricity as an adventure at first, with everybody including the dogs sleeping in one warm bed. But as the temperature dropped, the lack of hot water became a problem, and soon after, the fun factor faded. We were fortunate that my sister’s neighborhood a few towns over had underground power lines, so we decamped there for a few days for warm meals and hot showers. (Our house had no electricity for 12 days).

After Sandy, my wife suggested that instead of donating to the Red Cross as we usually do, we should consider local charities that could deploy money faster. We went with several local church groups that promised hot food and shelter for those whose homes were destroyed; for the rest of God’s creatures, it was the Little Shelter Animal Rescue & Adoption Center in Huntington, New York.

It is very disappointing to learn of this lack of transparency coming from the American Red Cross. I have no idea why it isn’t being more forthcoming about how it spent the $312 million in donations received after the storm. I’m left wondering if it failed to deploy that cash fast enough. Or perhaps more money was spent on administrative services and overhead than it claimed.

Regardless, it may be that complaints about how long the government has taken to deliver promised aid could also be applied to larger charities such as the Red Cross.

In researching a story on the problems of getting aid to recipients, ProPublica asked the Red Cross for specifics. It described the charity’s Sandy spending as “a black box.”

When giving to a charitable cause, donors want to know that their money is going to help victims of that tragedy. Historically, the Red Cross has said that 91 cents of every donated dollar reaches victims. That’s a good percentage, and it is no small part of why so many people feel comfortable donating to the Red Cross.

This isn’t the first time the Red Cross has balked at requests for greater transparency. There seemed to be a similar stonewalling after the Haiti earthquake, according to charity rater Givewell.org.

Nobody is obligated to give money to a charity -- we just do because we want to help people in need. The very least we expect from these charities is transparency in how our donations are spent. Shame on the Red Cross for failing to provide that transparency. And shame on Gibson Dunn for putting forth such an intellectually disingenuous and dishonest defense.

The Red Cross may win the battle for opacity, but it will lose the war for philanthropic donations in times of crisis. Until it opens its books on Sandy, it’s off my list of charities.

Barry Ritholtz, a Bloomberg View columnist, is the founder of Ritholtz Wealth Management. He is a consultant at and former chief executive officer for FusionIQ, a quantitative research firm.